Dow futures are up 40 points in pre-opening trading. There were a few positive earnings surprises here, as well as was one notable surprise in Europe. Deutsche Bank, the German bank under intense scrutiny and speculation, was expected to post a loss but instead posted a large profit.

Stocks in the U.S. and in Europe might be even higher except for one thing: And that one thing is the bond market.

Bond yields jumped again in Europe. The German 10-year note is up another five basis points after yesterday’s five basis point jump. The yield is now +0.14%. Traders are reacting to the Deutsche news and a surprisingly strong GDP number from the UK. UK yields popped on the news and seem to be dragging Europe and the U.S. along with it. The 10-year is starting the day at 1.82%. U.S. yields are higher but still not moving as much as foreign yields.

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Some Slight Worries

On the economic front, Weekly Jobless Claims fell to 258k. Durable Goods Orders were expected to be up 0.2% but fell by 0.1%. The core capital goods orders component was much weaker than expected, at -1.2%. There were major upward revisions to the prior months. This volatile data series is not anything that is worth looking at on a month-to-month basis.

U.S. bond traders might also be worried about tomorrow’s Preliminary 3rd Quarter GDP release. Traders and economists had been expecting a number of about 2%, give or take a couple of tenths of a percent, but expectations have changed after the Trade Balance report yesterday. The consensus is now 2.5% with many economists now expecting a gain closer to 3%.

The fact that expectations can shift so sharply on one Trade Balance number tells you why traders shouldn’t care about GDP, but traders decided well in advance that this particular release was important. Bond traders were probably focused on it because they expected a weak number. That no longer looks like a good strategy. But GDP more often than not surprises everyone on the preliminary number and anything can happen. I wouldn’t be surprised at any number from 1% to 3.5%. Remember when you see the number tomorrow that, regardless of what it is, GDP is not a number that the Fed uses to drive policy.

Bond and stock short-term trading are games of expectations, not long-term fundamentals. The change of expectations for tomorrow’s GDP release now reduces the risk of a negative reaction in the bond market to a strong number and also presents a rebound opportunity to a number that meets the lower expectations of just two days ago. Once the dust settles, U.S. traders will go back to watching the German market.

Dwight Johnston is the chief economist of the California and Nevada Credit Union Leagues and president of Dwight Johnston Economics. He is the author of a popular commentary site and is a frequent speaker at credit union board planning sessions and industry conferences.